Costs to the unemployed
• Even though, people may have more time to pursue leisure activities, they may be constrained in so doing by a lack of income.
• The unemployed may also suffer a loss of status.
• More likely to experience divorce, nervous breakdowns, bad health and are more likely to attempt suicide than the rest of the adult population
• Long periods of unemployment reduce the value of human capital. When people are out of work, their skills can become rusty, and they miss out on training in new methods.
Costs to society
• The main cost to society is the output which is lost. It is below potential due to unemployed resources.
• People will enjoy fewer goods and services than they could have consumed with higher employment
• The country will be producing inside its PPF
• Whilst government revenue will fall as unemployment rises, it will have to increase its spending on unemployment related benefits (such as unemployment benefit)
• In some countries there has been increased evidence of a link between crime and unemployment, particularly in the case of young unemployed men
Policies to reduce unemployment depend on the type of unemployment: Frictional unemployment
The focus should primarily be on improving the information flows between employers and job-seekers. Agencies need to pool and provide information on the type of job opportunities that are available and on the kind of workers who are searching for employment.
In some countries, and the stated aim of the Government here in Rwanda, there is an unemployment benefits scheme. In Europe where such schemes are well-known, some have advocated that reducing such benefit can reduce frictional unemployment. Reduced benefit will discourage the unemployed from not seeking work.
Structural unemployment
This involves encouraging people to look more actively for jobs, if necessary, in other parts of the country. Encourage people to adopt a more willing attitude towards retraining and, if necessary, to accept some reduction in wages. Use wage subsidy programmes to encourage employers to hire and train those who otherwise lack the necessary skills to get the jobs
Cyclical unemployment
Adopt expansionary monetary policies by increasing money supply and reducing interest rates to stimulate aggregate demand or expansionary fiscal policy by increasing government expenditure and reducing tax.
